Hospice endowment not mixed in with bankruptcy

Separate foundation has millions, not clear what will become of it

While the San Diego Hospice winds its way through U.S. Bankruptcy Court and prepares to close its doors for good, the charity’s fundraising arm retains tens of millions of dollars in cash and investments.

Those assets can’t be used to aid the end-of-life charity or pay off creditors. Not even the bankruptcy court can dictate what happens to the San Diego Hospice Foundation endowment.

Instead, the board of directors for the hospice, which also controls the foundation, will decide what happens to the nearly $22 million in donations left under foundation control.

“We are unsure what will end up happening to the foundation,” said Kathleen Pacurar, the hospice president and CEO who also oversees the endowment. “There are several paths that could take.”

The hospice, which has been serving terminally ill patients and their families since the 1970s, filed for bankruptcy Feb. 4 after its caseload collapsed in the wake of a Medicare audit into its admission practices.

Pacurar said in November that federal regulators may demand repayment of $60 million or more for accepting patients who might not have qualified for services or Medicare reimbursements. The sharp decline in referrals meant the hospice could no longer meet its monthly obligations, she said.

The bankruptcy filing was limited to the San Diego Hospice Corp., the original tax-exempt organization established in 1977 to serve dying patients.

The San Diego Hospice Foundation, a separate entity set up in 1985, is not part of the bankruptcy proceeding. It had $21.8 million in net assets on June 30, 2011, the last day of the fiscal year reflected on the its most recent tax filing.

Much of that — $15.4 million — is permanently restricted, meaning donors gave the money on condition that the foundation make grants from investment earnings and not principal. About $4.7 million is temporarily restricted, which means that money is not immediately available to support the hospice.

John D. Ayer, a professor emeritus at the UC Davis School of Law and former U.S. bankruptcy judge, said it would be difficult for creditors to stake a claim to foundation assets because it has been an independent shop for decades. Nonetheless, Ayer said, creditors may eventually convince the judge they are entitled to a share of the endowment.

“If they ran these two outfits as if they were one, they ought to be treated as one,” Ayer said.

In addition to sharing the same board of directors, senior staff historically was paid by both organizations. Pacurar, for example, received $191,246 from the foundation and $63,749 from the hospice in the tax year ending June 30, 2011, the most recent data available.

The foundation paid then-chief medical officer Laurel Herbst $23,630 and the hospice paid her $212,672, tax records show. Former CFO Kathleen Jones earned $24,298 from the foundation and $218,680 from the hospice.

The foundation’s primary mission is to “support the programs and services of San Diego Hospice Inc., a nonprofit corporation,” the tax form states.

In 2011, the foundation awarded the hospice $5.8 million, up from $5.2 million in 2010 and $3.6 million in 2009.